Inherit the Wind; There's Little Else Left

AS the baby boomers deal with the final days of their aged parents, a question often lurks, sometimes unspoken, in the pragmatic discussions about nursing homes, retirement savings, the future of the family house: After all the living is done, will anything be left over for an inheritance?

After all, the evidence shows that baby boomers are going to need it: working Americans are unprepared for their own retirement, economists say. They have little savings of their own, and are facing the possible erosion of Social Security and the limits of company pensions.

While some forecasters still hope that the vast pool of wealth accumulated by the generations born in the first half of last century will prop up the finances of their aging offspring, new statistics provide a starker picture.

Though hundreds of billions of dollars are being passed on every year, most elderly Americans can probably forget about passing on a financial lifeline to their children.

The latest numbers confirm that a vast majority of baby boomers cannot count on an inheritance to help them out of their jam. Even as the total pile of wealth passed down the generations has increased sharply, the inheritance received by a typical American has declined. The shift can be explained in part by demographics changes, but also by the changing nature of old age (life expectancy has increased) and retirement financing (rather, the lack of it).

In 2004 median inheritances -- half were bigger and half were smaller -- amounted to about $29,000 in today's money, according to a Federal Reserve analysis of the Survey of Consumer Finances. That is enough for the heirs to buy a new Pontiac Coupe. But for almost all, it is hardly life-changing money.

Nor are inheritances likely to increase. According to the analysis of the Fed data by Mark Zandi of Moody's Economy.com, 30 years ago the median inheritance was about $10,000 more, adjusted for inflation.

These meager bequests would seem to fly in the face of the huge transfer of wealth making its way down the generations.

Yes, big money is being passed down. According to the Fed data, the overall pie of inheritances has grown to nearly $200 billion annually -- more than three times the amount that was passed down in the mid-1970's, after accounting for inflation. Paul Schervish and John Havens of Boston College's Center for Wealth and Philanthropy predict that by midcentury, $25 trillion will be passed from the old to their offspring.

But the typical American is seeing little of this wealth. Mr. Schervish and Mr. Havens found that most money would go to a few lucky heirs: 7 percent of the estates would account for half the aggregate bequests.

Those heirs are fueling brisk growth in the wealth-management industry, a niche enterprise catering mostly to the rich.

"We are seeing bigger-sized estates," said Myra Salzer, president of the Wealth Conservancy in Boulder, Colo., which helps heirs manage their inherited wealth.

"Wealth is just exploding," said Daniel FitzPatrick, chief executive of Citigroup Trust, whose clients typically have hundreds of millions of dollars.

Another study, based on the University of Michigan's Health and Retirement Study, also shows the disparities. Michael D. Hurd and James P. Smith of the RAND Corporation estimated that half of the children of parents born from 1931 to 1947 -- that is, parents who are about 60 to 75 years old -- would inherit less than $19,000, while the top 5 percent would receive at least $237,000.

In a way, it's puzzling that typical American workers aren't receiving more. Long ago, when workers retired on Social Security and the monthly pension check from their employers, they could expect to die with little more than the house to leave behind.

But as the old-fashioned pension has been replaced by savings plans like individual retirement accounts, more people will die with leftover money to pass down the line.

The median net worth of people 75 and over, the sum of all their assets minus all their debts, grew by nearly $50,000 from 1995 to 2004, to $163,000. In 2004, 35 percent of these senior citizens owned stock, compared with 28 percent nine years earlier. And 85 percent owned their home.

That money isn't translating into bigger inheritances partly for reasons of demographics. Boomers must share inheritances with more siblings than the previous generation.

Though it may come as a surprise, according to Mr. Zandi, among baby boom families -- with children born from 1945 to 1964 -- there are about 3.5 children per family. That's about one child more than in families from before World War II.And even though the elderly are richer than ever, old age has also gotten longer and much more expensive.

For younger senior citizens, this could have a profound impact. Like most Americans his age, Charlie Kelly hopes to leave money behind for his two sons when he dies. The former steelworker, who will turn 65 in April, figures his house in Bethlehem, Pa., will be worth a lot of money. And he and his wife have some $80,000 in the bank.

But the total may not make for a very big estate. Though Mr. Kelly and his wife both receive monthly pensions from their former jobs, they dip into their savings to cover vacations and unexpected expenses. And they can both expect to live for quite a bit longer. "I'm hoping there will be enough left over," Mr. Kelly said. "How much it will be, who knows?"

He can expect to live an additional 17 years, and his wife, another 20 years. Their life expectancies 35 years ago would have been about three years less. And health care costs increase with each passing year. "Right now we make ends meet," Mr. Kelly said. "But everything goes up every year."

Mr. Hurd and Mr. Smith of RAND calculated that the average person between 60 and 70 would spend 58 percent of his or her wealth before dying.

Even though many senior citizens want to keep their homes until they die, many sell, mostly to cover health-related expenses. According to another study by Mr. Hurd, 44 percent of people who owned a house at age 70 will have sold it by age 85.

Mr. FitzPatrick at Citigroup said the concern over health costs and other expenses of old age even applies to those worth tens of millions, implausible as this may seem. "They think, will I outlive my money?" he said.

So as the elderly contemplate their eventual demise, they may gain some comfort knowing that many of their children may one day inherit enough money to enjoy a new Pontiac Coupe.

But the best bequest they could leave their children would be a a bit of good advice: save.

THE NATION: EMPTY NEST EGGS Correction: April 2, 2006, Sunday Because of an editing error, an article last Sunday about declining inheritances for baby boomers misstated the source of an estimate of the median inheritance in 2004. It was from an analysis of the Survey of Consumer Finances, which is conducted by the Federal Reserve. The analysis was by Mark Zandi of Moody's Economy.com, not by the Fed.

Correction: April 2, 2006, Sunday A chart that made use of the same analysis was credited incompletely. Moody's Economy.com should have been cited along with the Federal Reserve.